EXHIBIT 10.01
TOWER GROUP, INC.
13,000 CAPITAL SECURITIES
FLOATING RATE CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000.00 PER CAPITAL SECURITY)
PLACEMENT AGREEMENT
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December 17, 2004
Cohen Bros. & Co.
1818 Market Street
Philadelphia, Pennsylvania 19103
Ladies and Gentlemen:
Tower Group, Inc., incorporated and existing under the laws of Delaware
(the "Company"), and its financing subsidiary, Tower Group Statutory Trust IV, a
Delaware statutory trust (the "Trust," and hereinafter together with the
Company, the "Offerors"), hereby confirm their agreement (this "Agreement") with
Cohen Bros. & Company as placement agent (the "Placement Agent"), as follows:
SECTION 1. ISSUANCE AND SALE OF SECURITIES.
1.1 INTRODUCTION. The Offerors propose to issue and sell at the
Closing (as defined in Section 2.3.1 hereof) 13,000 of the Trust's Floating
Rate Capital Securities, with a liquidation amount of $1,000.00 per capital
security (the "Capital Securities"), to Merrill Lynch International (the
"Purchaser") pursuant to the terms of a Subscription Agreement entered
into, or to be entered into on or prior to the Closing Date (as defined in
Section 2.3.1 hereof), between the Offerors and the Purchaser (the
"Subscription Agreement"), the form of which is attached hereto as Exhibit
A and incorporated herein by this reference.
1.2 OPERATIVE AGREEMENTS. The Capital Securities shall be fully and
unconditionally guaranteed on a subordinated basis by the Company with
respect to distributions and amounts payable upon liquidation, redemption
or repayment (the "Guarantee") pursuant and subject to the Guarantee
Agreement (the "Guarantee Agreement"), to be dated as of the Closing Date
and executed and delivered by the Company and JPMorgan Chase Bank, National
Association ("Chase"), as trustee (the "Guarantee Trustee"), for the
benefit from time to time of the holders of the Capital Securities. The
entire proceeds from the sale by the Trust to the Purchaser of the Capital
Securities shall be combined with the entire proceeds from the concurrent
sale by the Trust to the Company of its common securities (the "Common
Securities"), and shall be used by the Trust to purchase $13,403,000 in
principal amount of the Floating Rate Junior Subordinated Deferrable
Interest Debentures (the "Debentures") of the Company. The Capital
Securities and the Common Securities for the Trust shall be issued pursuant
to an Amended and Restated Declaration of Trust among Chase, as Delaware
Trustee (the "Delaware Trustee"), Chase, as institutional trustee (the
"Institutional Trustee"), the administrators of the Trust named therein,
and the Company, to be dated as of the Closing Date and in substantially
the form heretofore delivered to the Placement Agent (the "Trust
Agreement"). The Debentures shall be issued pursuant to an Indenture (the
"Indenture"), to be dated as of the Closing Date, between the Company and
Chase, as indenture trustee (the "Indenture Trustee"). This Agreement and
the documents identified in this Section 1.2 and in Section 1.1 are
referred to herein as the "Operative Documents."
1.3 RIGHTS OF PURCHASER. The Capital Securities shall be offered and
sold by the Trust directly to the Purchaser without registration of any of
the Capital Securities, the Debentures or the Guarantee under the
Securities Act of 1933, as amended (the "Securities Act"), or any other
applicable securities laws in reliance upon exemptions from the
registration requirements of the Securities Act and other applicable
securities laws. The Offerors agree that this Agreement shall be
incorporated by reference into the Subscription Agreement and the Purchaser
shall be entitled to each of the benefits of the Placement Agent and the
Purchaser under this Agreement and shall be entitled to enforce obligations
of the Offerors under this Agreement as fully as if the Purchaser were a
party to this Agreement. The Offerors and the Placement Agent have entered
into this Agreement to set forth their understanding as to their
relationship and their respective rights, duties and obligations.
1.4 LEGENDS. Upon original issuance thereof, and until such time as
the same is no longer required under the applicable requirements of the
Securities Act, the Capital Securities and Debentures certificates shall
each contain a legend as required pursuant to any of the Operative
Documents.
SECTION 2. PURCHASE OF CAPITAL SECURITIES.
2.1 EXCLUSIVE RIGHTS; PURCHASE PRICE. From the date hereof until the
Closing Date (which date may be extended by mutual agreement of the
Offerors and the Placement Agent), the Offerors hereby grant to the
Placement Agent the exclusive right to arrange for the sale of the Capital
Securities to the Purchaser at a purchase price of $1,000.00 per Capital
Security.
2.2 SUBSCRIPTION AGREEMENT. The Offerors hereby agree to evidence
their acceptance of the subscription by countersigning a copy of the
Subscription Agreement and returning the same to the Placement Agent.
2.3 CLOSING AND DELIVERY OF PAYMENT.
2.3.1 CLOSING; CLOSING DATE. The sale and purchase of the
Capital Securities by the Offerors to the Purchaser shall take place at a
closing (the "Closing") at the offices of Bracewell & Patterson, L.L.P., at
10:00 a.m. (New York City time) on December 21, 2004, or such other
business day as may be agreed upon by the Offerors and the Placement Agent
(the "Closing Date"); provided, however, that in no event shall the Closing
Date occur later than December 29, 2004 unless consented to by the
Purchaser. Payment by the Purchaser shall be payable in the manner set
forth in the Subscription Agreement and shall be made prior to or on the
Closing Date.
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2.3.2 DELIVERY. The certificate for the Capital Securities
shall be in definitive form, registered in the name of the Purchaser or its
nominee and in the aggregate amount of the Capital Securities purchased by
the Purchaser.
2.3.3 TRANSFER AGENT. The Offerors shall deposit the
certificate representing the Capital Securities with, or as instructed by,
the Institutional Trustee on the Closing Date.
2.4 PLACEMENT AGENT FEES AND EXPENSES.
2.4.1 PLACEMENT AGENT COMPENSATION. Because the proceeds from
the sale of the Capital Securities shall be used to purchase the Debentures
from the Company, the Company shall pay an aggregate of $17.50 for each
$1,000.00 of principal amount of Debentures sold to the Trust (excluding
the Debentures related to the Common Securities purchased by the Company).
Such amount shall be delivered to the Institutional Trustee or such other
person designated by the Placement Agent on the Closing Date.
2.4.2 COSTS AND EXPENSES. Whether or not this Agreement is
terminated or the sale of the Capital Securities is consummated, the
Company hereby covenants and agrees that it shall pay or cause to be paid
(directly or by reimbursement) all reasonable costs and expenses incident
to the performance of the obligations of the Offerors under this Agreement,
including all fees, expenses and disbursements of counsel and accountants
for the Offerors; the reasonable costs and charges of any trustee, transfer
agent or registrar and the fees and disbursements of counsel to any
trustee, transfer agent or registrar in each case only to the extent
attributable to the Debentures and the Capital Securities; all reasonable
expenses incurred by the Offerors incident to the preparation, execution
and delivery of the Trust Agreement, the Indenture, and the Guarantee; and
all other reasonable costs and expenses incident to the performance of the
obligations of the Company hereunder and under the Trust Agreement.
2.5 FAILURE TO CLOSE. If any of the conditions to the Closing
specified in this Agreement shall not have been fulfilled to the
satisfaction of the Placement Agent or if the Closing shall not have
occurred on or before 10:00 a.m. (New York City time) on December 29, 2004
or such later Closing Date consented to by the Purchaser pursuant to
Section 2.3.1, then each party hereto, notwithstanding anything to the
contrary in this Agreement, shall be relieved of all further obligations
under this Agreement without thereby waiving any rights it may have by
reason of such nonfulfillment or failure; PROVIDED, HOWEVER, that the
obligations of the parties under Sections 2.4.2, 7.5 and 9 shall not be so
relieved and shall continue in full force and effect.
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SECTION 3. CLOSING CONDITIONS. The obligations of the Purchaser and the
Placement Agent on the Closing Date shall be subject to the accuracy, at
and as of the Closing Date, of the representations and warranties of the
Offerors contained in this Agreement, to the accuracy, at and as of the
Closing Date, of the statements of the Offerors made in any certificates
pursuant to this Agreement, to the performance by the Offerors of their
respective obligations under this Agreement, to compliance, at and as of
the Closing Date, by the Offerors with their respective agreements herein
contained, and to the following further conditions:
3.1 OPINIONS OF COUNSEL. On the Closing Date, the Placement Agent
shall have received the following favorable opinions, each dated as of the
Closing Date: (a) from McLaughlin & Stern, LLP, counsel for the Offerors
and addressed to the Purchaser and the Placement Agent in substantially the
form set forth on EXHIBIT B-1 attached hereto and incorporated herein by
this reference, (b) from Richards, Layton & Finger, P.A., special Delaware
counsel to the Offerors and addressed to the Purchaser, the Placement Agent
and the Offerors, in substantially the form set forth on EXHIBIT B-2
attached hereto and incorporated herein by this reference, and (c) from
Bracewell & Patterson, L.L.P., special tax counsel to the Offerors, and
addressed to the Placement Agent and the Offerors, in substantially the
form set forth on EXHIBIT B-3 attached hereto and incorporated herein by
this reference, subject to the receipt by Bracewell & Patterson, L.L.P. of
a representation letter from the Company in the form set forth in EXHIBIT
B-3 completed in a manner reasonably satisfactory to Bracewell & Patterson,
L.L.P. (collectively, the "Offerors' Counsel Opinions"). In rendering the
Offerors' Counsel Opinions, counsel to the Offerors may rely as to factual
matters upon certificates or other documents furnished by officers,
directors and trustees of the Offerors (copies of which shall be delivered
to the Placement Agent and the Purchaser) and by government officials, and
upon such other documents as counsel to the Offerors may, in their
reasonable opinion, deem appropriate as a basis for the Offerors' Counsel
Opinions. Counsel to the Offerors may specify the jurisdictions in which
they are admitted to practice and that they are not admitted to practice in
any other jurisdiction and are not experts in the law of any other
jurisdiction. If the Offerors' counsel is not admitted to practice in the
State of New York, the opinion of Offerors' counsel may assume, for
purposes of the opinion, that the laws of the State of New York are
substantively identical, in all respects material to the opinion, to the
internal laws of the state in which such counsel is admitted to practice.
Such Offerors' Counsel Opinions shall not state that they are to be
governed or qualified by, or that they are otherwise subject to, any
treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section
of Business Law (1991).
3.2 OFFICER'S CERTIFICATE. At the Closing Date, the Purchaser and the
Placement Agent shall have received certificates from the Chief Executive
Officer of the Company, dated as of the Closing Date, stating that (a) the
representations and warranties of the Offerors set forth in Section 5
hereof are true and correct as of the Closing Date and that the Offerors
have complied with all agreements and satisfied all conditions on their
part to be performed or satisfied at or prior to the Closing Date, (b)
since the date of this Agreement the Offerors have not incurred any
liability or obligation, direct or contingent, or entered into any material
transactions, other than in the ordinary course of business, which is
material to the Offerors, and (c) covering such other matters as the
Placement Agent may reasonably request.
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3.3 ADMINISTRATOR'S CERTIFICATE. At the Closing Date, the Purchaser
and the Placement Agent shall have received a certificate of one or more
administrators of the Trust, dated as of the Closing Date, stating that the
representations and warranties of the Trust set forth in Section 5 are true
and correct as of the Closing Date and that the Trust has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to the Closing Date.
3.4 PURCHASE PERMITTED BY APPLICABLE LAWS; LEGAL INVESTMENT. The
purchase of and payment for the Capital Securities as described in this
Agreement and pursuant to the Subscription Agreement shall (a) not be
prohibited by any applicable law or governmental regulation, (b) not
subject the Purchaser or the Placement Agent to any penalty or, in the
reasonable judgment of the Purchaser and the Placement Agent, other onerous
conditions under or pursuant to any applicable law or governmental
regulation, and (c) be permitted by the laws and regulations of the
jurisdictions to which the Purchaser and the Placement Agent are subject.
3.5 CONSENTS AND PERMITS. The Company and the Trust shall have
received all consents, permits and other authorizations, and made all such
filings and declarations, as may be required from any person or entity
pursuant to any law, statute, regulation or rule (federal, state, local and
foreign), or pursuant to any agreement, order or decree to which the
Company or the Trust is a party or to which either is subject, in
connection with the transactions contemplated by this Agreement.
3.6 SALE OF PURCHASER SECURITIES. The Purchaser shall have sold
securities issued by the Purchaser in an amount such that the net proceeds
of such sale shall be (i) available on the Closing Date and (ii) in an
amount sufficient to purchase the Capital Securities and all other capital
or similar securities contemplated in agreements similar to this Agreement
and the Subscription Agreement.
3.7 INFORMATION. Prior to or on the Closing Date, the Offerors shall
have furnished to the Placement Agent such further information,
certificates, opinions and documents addressed to the Purchaser and the
Placement Agent, which the Placement Agent may reasonably request,
including, without limitation, a complete set of the Operative Documents or
any other documents or certificates required by this Section 3; and all
proceedings taken by the Offerors in connection with the issuance, offer
and sale of the Capital Securities as herein contemplated shall be
reasonably satisfactory in form and substance to the Placement Agent.
If any condition specified in this Section 3 shall not have been
fulfilled when and as required in this Agreement, or if any of the opinions
or certificates mentioned above or elsewhere in this Agreement shall not be
reasonably satisfactory in form and substance to the Placement Agent, this
Agreement may be terminated by the Placement Agent by notice to the
Offerors at any time at or prior to the Closing Date. Notice of such
termination shall be given to the Offerors in writing or by telephone or
facsimile confirmed in writing.
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SECTION 4. CONDITIONS TO THE OFFERORS' OBLIGATIONS. The obligations of the
Offerors to sell the Capital Securities to the Purchaser and consummate the
transactions contemplated by this Agreement shall be subject to the
accuracy, at and as of the Closing Date, of the representations and
warranties of the Placement Agent contained in this Agreement and to the
following further conditions:
4.1 EXECUTED AGREEMENT. The Offerors shall have received from the
Placement Agent an executed copy of this Agreement.
4.2 FULFILLMENT OF OTHER OBLIGATIONS. The Placement Agent shall have
fulfilled all of their other obligations and duties required to be
fulfilled under this Agreement prior to or at the Closing.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE OFFERORS. Except as set
forth on the Disclosure Schedule (as defined in Section 11.1) attached
hereto, if any, the Offerors jointly and severally represent and warrant to
the Placement Agent and the Purchaser as of the date hereof and as of the
Closing Date as follows:
5.1 SECURITIES LAW MATTERS; AUTHORIZATIONS.
(a) Neither the Company nor the Trust, nor any of their
"Affiliates" (as defined in Rule 501(b) of Regulation D under the
Securities Act ("Regulation D")), nor any person acting on any of their
behalf has, directly or indirectly, made offers or sales of any security,
or solicited offers to buy any security, under circumstances that would
require the registration under the Securities Act of any of the Capital
Securities, the Guarantee or the Debentures (collectively, the
"Securities") or any other securities to be issued, or which may be issued,
by the Purchaser.
(b) Neither the Company nor the Trust, nor any of their
Affiliates, nor any person acting on its or their behalf has (i) other than
the Placement Agent, offered for sale or solicited offers to purchase the
Securities, (ii) engaged or will engage, in any "directed selling efforts"
within the meaning of Regulation S under the Securities Act ("Regulation
S") with respect to the Securities, or (iii) engaged in any form of
offering, general solicitation or general advertising (within the meaning
of Regulation D) in connection with any offer or sale of any of the
Securities.
(c) The Securities satisfy the eligibility requirements of Rule
144A(d)(3) under the Securities Act.
(d) Neither the Company nor the Trust is or, after giving effect
to the offering and sale of the Capital Securities and the consummation of
the transactions described in this Agreement, will be an "investment
company" or an entity "controlled" by an "investment company," in each case
within the meaning of Section 3(a) of the Investment Company Act of 1940,
as amended (the "Investment Company Act"), without regard to Section 3(c)
of the Investment Company Act.
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(e) Neither the Company nor the Trust has paid or agreed to pay
to any person or entity (other than the Placement Agent) any compensation
for soliciting another to purchase any of the Securities.
(f) No authorization, approval, consent, order, registration or
qualification of or with any court or governmental authority or agency
(including, without limitation, any insurance regulatory agency or body) is
required in connection with the offering and sale of the Securities or the
Guarantee hereunder, or the consummation by the Company or the Trust of any
other transaction contemplated hereby, except such as have been obtained
and made under the federal securities laws or state insurance laws and such
as may be required under state or foreign securities or Blue Sky laws.
5.2 INCORPORATED DOCUMENTS. The documents of the Company filed with
the Securities and Exchange Commission (the "Commission") in accordance
with the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
from and including the commencement of the fiscal year covered by the
Company's most recent Annual Report on Form 10-K, at the time they were or
hereafter are filed by the Company with the Commission, complied and will
comply in all material respects with the requirements of the Exchange Act
and the rules and regulations of the Commission thereunder, and, at the
date of this Agreement and on the Closing Date, do not and will not include
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; and other than such instruments, agreements, contracts and
other documents as are filed as exhibits to the Company's Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q or Current Reports on Form 8-K,
and Registration Statement on Form S-1, there are no instruments,
agreements, contracts or documents of a character described in Item 601 of
Regulation S-K promulgated by the Commission to which the Company or any of
its subsidiaries is a party.
5.3 ORGANIZATION, STANDING AND QUALIFICATION OF THE TRUST. The Trust
has been duly created and is validly existing in good standing as a
statutory trust under the Delaware Statutory Trust Act (the "Statutory
Trust Act") with the power and authority to own property and to conduct the
business it transacts and proposes to transact and to enter into and
perform its obligations under the Operative Documents. The Trust is duly
qualified to transact business as a foreign entity and is in good standing
in each jurisdiction in which such qualification is necessary, except where
the failure to so qualify or be in good standing would not have a material
adverse effect on the Trust. The Trust is not a party to or otherwise bound
by any agreement other than the Operative Documents. The Trust is and will,
under current law, be classified for federal income tax purposes as a
grantor trust and not as an association taxable as a corporation.
5.4 TRUST AGREEMENT. The Trust Agreement has been duly authorized by
the Company and, on the Closing Date, will have been duly executed and
delivered by the Company and the administrators of the Trust, and, assuming
due authorization, execution and delivery by the Delaware Trustee and the
Institutional Trustee, will be a valid and binding obligation of the
Company and such administrators, enforceable against them in accordance
with its terms, subject to (a) applicable bankruptcy, insolvency,
moratorium, receivership, reorganization, liquidation and other laws
relating to or affecting creditors' rights generally, and (b) general
principles of equity (regardless of whether considered and applied in a
proceeding in equity or at law) ("Bankruptcy and Equity"). Each of the
administrators of the Trust is an employee or a director of the Company or
of a subsidiary of the Company and has been duly authorized by the Company
to execute and deliver the Trust Agreement.
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5.5 GUARANTEE AGREEMENT AND THE INDENTURE. Each of the Guarantee and
the Indenture has been duly authorized by the Company and, on the Closing
Date will have been duly executed and delivered by the Company, and,
assuming due authorization, execution and delivery by the Guarantee
Trustee, in the case of the Guarantee, and by the Indenture Trustee, in the
case of the Indenture, will be a valid and binding obligation of the
Company enforceable against it in accordance with its terms, subject to
Bankruptcy and Equity.
5.6 CAPITAL SECURITIES AND COMMON SECURITIES. The Capital Securities
and the Common Securities have been duly authorized by the Trust Agreement
and, when issued and delivered against payment therefor on the Closing Date
to the Purchaser, in the case of the Capital Securities, and to the
Company, in the case of the Common Securities, will be validly issued and
represent undivided beneficial interests in the assets of the Trust. None
of the Capital Securities or the Common Securities is subject to preemptive
or other similar rights. On the Closing Date, all of the issued and
outstanding Common Securities will be directly owned by the Company free
and clear of any pledge, security interest, claim, lien or other
encumbrance.
5.7 DEBENTURES. The Debentures have been duly authorized by the
Company and, at the Closing Date, will have been duly executed and
delivered to the Indenture Trustee for authentication in accordance with
the Indenture, and, when authenticated in the manner provided for in the
Indenture and delivered against payment therefor by the Trust, will
constitute valid and binding obligations of the Company entitled to the
benefits of the Indenture enforceable against the Company in accordance
with their terms, subject to Bankruptcy and Equity.
5.8 POWER AND AUTHORITY. This Agreement has been duly authorized,
executed and delivered by the Company and the Trust and constitutes the
valid and binding obligation of the Company and the Trust, enforceable
against the Company and the Trust in accordance with its terms, subject to
Bankruptcy and Equity.
5.9 NO DEFAULTS. The Trust is not in violation of the Trust Agreement
or, to the knowledge of the administrators of the Trust, any provision of
the Statutory Trust Act. The execution, delivery and performance by the
Company or the Trust of this Agreement or the Operative Documents to which
it is a party, and the consummation of the transactions contemplated herein
or therein and the use of the proceeds therefrom, will not conflict with or
constitute a breach of, or a default under, or result in the creation or
imposition of any lien, charge or other encumbrance upon any property or
assets of the Trust, the Company or any of the Company's Significant
Subsidiaries (as defined in Section 5.11 hereof) pursuant to any contract,
indenture, mortgage, loan agreement, note, lease or other instrument to
which the Trust, the Company or any of its Significant Subsidiaries is a
party or by which it or any of them may be bound, or to which any of the
property or assets of any of them is subject, except for a conflict,
breach, default, lien, charge or encumbrance which could not, singly or in
the aggregate, reasonably be expected to have a Material Adverse Effect nor
will such action result in any violation of the Trust Agreement or the
Statutory Trust Act or require the consent, approval, authorization or
order of any court or governmental agency or body, except for those
consents, approvals, authorizations and orders that have been obtained or
made. As used herein, the term "Material Adverse Effect" means any one or
more effects that individually or in the aggregate are material and adverse
to the Offerors' ability to consummate the transactions contemplated herein
or in the Operative Documents or any one or more effects that individually
or in the aggregate are material and adverse to the condition (financial or
otherwise), earnings, affairs, business prospects or results of operations
of the Company and its Significant Subsidiaries taken as whole, whether or
not occurring in the ordinary course of business.
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5.10 ORGANIZATION, STANDING AND QUALIFICATION OF THE COMPANY. The
Company has been duly incorporated and is validly existing as a corporation
in good standing under the laws of Delaware, with all requisite corporate
power and authority to own its properties and conduct the business it
transacts and proposes to transact, and is duly qualified to transact
business and is in good standing as a foreign corporation in each
jurisdiction where the nature of its activities requires such
qualification, except where the failure of the Company to be so qualified
would not, singly or in the aggregate, have a Material Adverse Effect.
5.11 SUBSIDIARIES OF THE COMPANY. Each of the Company's significant
subsidiaries (as defined in Section 1-02(w) of Regulation S-X to the
Securities Act (the "Significant Subsidiaries")) is listed in EXHIBIT C
attached hereto and incorporated herein by this reference. Each Significant
Subsidiary has been duly organized and is validly existing and in good
standing under the laws of the jurisdiction in which it is chartered or
organized, with all requisite power and authority to own its properties and
conduct the business it transacts and proposes to transact, and is duly
qualified to transact business and is in good standing as a foreign entity
in each jurisdiction where the nature of its activities requires such
qualification, except where the failure of any such Significant
Subsidiaries to be so qualified would not, singly or in the aggregate, have
a Material Adverse Effect. All of the issued and outstanding shares of
capital stock of the Significant Subsidiaries (a) have been duly authorized
and are validly issued, (b) are fully paid and nonassessable, and (c) are
wholly owned, directly or indirectly, by the Company free and clear of any
security interest, mortgage, pledge, lien, encumbrance, restriction upon
voting or transfer, preemptive rights, claim, equity or other defect.
5.12 PERMITS. The Company and each of its Significant Subsidiaries
have all requisite power and authority, and all necessary authorizations,
approvals, orders, licenses (including, without limitation, insurance
licenses from the insurance departments of the various states where the
Significant Subsidiaries write insurance business (the "Insurance
Licenses")), certificates and permits, including those that are necessary
to own or lease their respective properties (collectively, "Permits"), of
and from regulatory or governmental officials, bodies and tribunals that
are material to the Company and its Significant Subsidiaries taken as a
whole and are necessary to conduct the business now operated by them; the
Company and its Significant Subsidiaries are in compliance with the terms
and conditions of all such Insurance Licenses and Permits, except where the
failure so to comply would not, singly or in the aggregate, result in a
Material Adverse Effect; all of the Insurance Licenses and Permits are
valid and in full force and effect, except where the invalidity of such
Insurance Licenses and Permits or the failure of such Insurance Licenses
and Permits to be in full force and effect would not result in a Material
Adverse Effect; and neither the Company nor any of its Significant
Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Insurance Licenses and Permits
which, singly or in the aggregate, may reasonably be expected to result in
a Material Adverse Effect.
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5.13 CONFLICTS, AUTHORIZATIONS AND APPROVALS. Neither the Company nor
any of its Significant Subsidiaries is in violation of its respective
articles or certificate of incorporation, charter or by-laws or similar
organizational documents or in default in the performance or observance of
any obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other agreement or
instrument to which either the Company or any of its Significant
Subsidiaries is a party, or by which it or any of them may be bound or to
which any of the property or assets of the Company or any of its
Significant Subsidiaries is subject, the effect of which violation or
default in performance or observance would have, singly or in the
aggregate, a Material Adverse Effect.
5.14 FINANCIAL STATEMENTS.
(a) The consolidated balance sheets of the Company and all of its
Significant Subsidiaries as of December 31, 2002 and December 31, 2003, and
related consolidated income statements and statements of changes in
shareholders' equity for the 3 years ended December 31, 2003 together with
the notes thereto, and the consolidated balance sheets of the Company and
all of its Significant Subsidiaries as of September 30, 2004 and the
related consolidated income statements and statements of changes in
shareholders' equity for the 9 months then ended (the "Financial
Statements"), copies of each of which have been provided to the Placement
Agent, have been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis (except as may be
disclosed therein) and fairly present in all material respects the
financial position and the results of operations and changes in
shareholders' equity of the Company and all of its Significant Subsidiaries
as of the dates and for the periods indicated (subject, in the case of
interim financial statements, to normal recurring year-end adjustments,
none of which shall be material). The books and records of the Company and
all of its Significant Subsidiaries have been, and are being, maintained in
all material respects in accordance with generally accepted accounting
principles and any other applicable legal and accounting requirements and
reflect only actual transactions.
(b) The audited statutory financial statements as of December 31,
2002, and December 31, 2003 and the unaudited statutory financial
statements as of September 30, 2004 (collectively, the "Statutory Financial
Statements") of each of the Company's insurance company subsidiaries have
for each relevant period been prepared in accordance with statutory
accounting practices ("SAP") prescribed or permitted by the National
Association of Insurance Commissioners, and with respect to each insurance
subsidiary, the appropriate Insurance Department of the state of domicile
of such insurance subsidiary, and SAP has been applied on a consistent
basis throughout the periods involved.
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(c) Since the respective dates of the most recent Financial
Statements and the Statutory Financial Statements, there has been no
material adverse change or development with respect to the financial
condition or earnings of the Company and all of its Significant
Subsidiaries, taken as a whole.
(d) The accountants of the Company who certified the Financial
Statements are independent public accountants of the Company and its
Significant Subsidiaries within the meaning of the Securities Act and the
rules and regulations thereunder.
5.15 INTERNAL CONTROLS. Each of the Company and its subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
the management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and/or SAP, as applicable and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
the management's general or specific authorization, (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences and (v) material information relating to the Company and its
subsidiaries is made known to management. Management has (a) evaluated the
effectiveness of the internal accounting controls of each of the Company
and its subsidiaries and (b) disclosed to the accountants who certified the
Financial Statements and the Statutory Financial Statements and to the
audit committee (1) all significant deficiencies in the design or operation
of internal controls which could adversely affect the ability of the
Company and its subsidiaries to record, process, summarize, and report
financial data, and have identified for such accountants any material
weaknesses in internal controls and (2) any fraud, whether or not material,
that involves management or other employees who have a significant role in
the internal controls of the Company and its subsidiaries, and any such
deficiencies or fraud would not, singularly or in the aggregate, be
expected to result in a Material Adverse Effect.
5.16 REGULATORY ENFORCEMENT MATTERS. Neither the Company nor any of
its Significant Subsidiaries is subject or is party to, or has received any
notice or advice that any of them may become subject or party to, any
investigation with respect to, any cease-and-desist order, agreement,
consent agreement, memorandum of understanding or other regulatory
enforcement action, proceeding or order with or by, or is a party to any
commitment letter or similar undertaking to, or is subject to any directive
by, or has been since January 1, 2001, a recipient of any supervisory
letter from, or since January 1, 2001, has adopted any board resolutions at
the request of, any agency charged with the supervision or regulation of
insurance companies (a "Regulatory Agency") that currently restricts in any
material respect the conduct of their business or that in any material
manner relates to their capital adequacy, their ability or authority to pay
dividends or make distributions to their shareholders or make payments of
principal or interest on their debt obligations, their management or their
business (each, a "Regulatory Agreement"), nor has the Company or any of
its Significant Subsidiaries been advised since January 1, 2001, by any
Regulatory Agency that it is considering issuing or requesting any such
Regulatory Agreement. There is no material unresolved violation, criticism
or exception by any Regulatory Agency with respect to any report or
statement relating to any examinations of the Company or any of its
Significant Subsidiaries.
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5.17 NO MATERIAL CHANGE. Since the respective dates of the most recent
Financial Statements and Statutory Financial Statements, there has been no
material adverse change or development with respect to the condition
(financial or otherwise), earnings, affairs, business prospects or results
of operations of the Company or its Significant Subsidiaries on a
consolidated basis, whether or not arising in the ordinary course of
business.
5.18 INSURANCE RESERVING PRACTICES. The Company and its Significant
Subsidiaries have made no material change in their insurance reserving
practices since the respective dates as of which information is given in
the most recent Financial Statements and Statutory Financial Statements.
5.19 REINSURANCE TREATIES. All reinsurance and retrocessional
treaties, contracts, agreements and arrangements to which any Significant
Subsidiary is a party are in full force and effect and no Significant
Subsidiary is in violation of, or in default in the performance, observance
or fulfillment of, any obligation, agreement, covenant or condition
contained therein, with such exceptions that would not, singularly or in
the aggregate, have a Material Adverse Effect; and no Significant
Subsidiary has received any notice from any of the other parties to such
treaties, contracts, agreements or arrangements that such other party
intends not to perform thereunder and, to the best knowledge of the Company
and the Significant Subsidiaries, none of the other parties to such
treaties, contracts, agreements or arrangements will be unable to perform
thereunder except to the extent adequately and properly reserved for in the
consolidated financial statements of the Company, with such exceptions that
would not, singularly or in the aggregate, have a Material Adverse Effect.
5.20 NO UNDISCLOSED LIABILITIES. Neither the Company nor any of its
Significant Subsidiaries has any material liability, whether known or
unknown, whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated, and
whether due or to become due, including any liability for taxes (and there
is no past or present fact, situation, circumstance, condition or other
basis for any present or future action, suit, proceeding, hearing, charge,
complaint, claim or demand against the Company or its Significant
Subsidiaries giving rise to any such liability), except (i) for liabilities
set forth in the Financial Statements and Statutory Financial Statements,
respectively, (ii) normal fluctuation in the amount of the liabilities
referred to in clause (i) above occurring in the ordinary course of
business of the Company and all of its Significant Subsidiaries since the
date of the most recent balance sheet included in the Financial Statements
and Statutory Financial Statements, respectively, and (iii) as may be
specifically disclosed in writing to the Placement Agent.
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5.21 LITIGATION. No inquiry, charge, investigation, action, suit or
proceeding (including, without limitation, any proceeding to revoke or deny
renewal of any Insurance Licenses) is pending or, to the knowledge of the
Offerors, threatened, against or affecting the Company or its Significant
Subsidiaries or any of their respective properties before or by (i) any
court wherein an unfavorable decision, ruling or finding could reasonably
be expected to have, singly or in the aggregate, a Material Adverse Effect,
or (ii) any regulatory, administrative or governmental official,
commission, board, agency or other authority or body, or any arbitrator,
wherein an unfavorable decision, ruling or finding could have, singly or in
the aggregate, a Material Adverse Effect.
5.22 DEFERRAL OF INTEREST PAYMENTS ON DEBENTURES. The Company has no
present intention to exercise its option to defer payments of interest on
the Debentures as provided in the Indenture. The Company believes that the
likelihood that it would exercise its right to defer payments of interest
on the Debentures as provided in the Indenture at any time during which the
Debentures are outstanding is remote because of the restrictions that would
be imposed on the Company's ability to declare or pay dividends or
distributions on, or to redeem, purchase, acquire or make a liquidation
payment with respect to, any of the Company's capital stock and on the
Company's ability to make any payments of principal, interest or premium
on, or repay, repurchase or redeem, any of its debt securities that rank
PARI PASSU in all respects with, or junior in interest to, the Debentures.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE PLACEMENT AGENT. Each
Placement Agent represents and warrants to the Offerors as to itself (but
not as to the other Placement Agent) as follows:
6.1 ORGANIZATION, STANDING AND QUALIFICATION.
(a) The Placement Agent is duly organized, validly existing and
in good standing under the laws of the United States, with full power and
authority to own, lease and operate its properties and conduct its business
as currently being conducted. The Placement Agent is duly qualified to
transact business as a foreign corporation and is in good standing in each
other jurisdiction in which it owns or leases property or conducts its
business so as to require such qualification and in which the failure to so
qualify would, individually or in the aggregate, have a material adverse
effect on the condition (financial or otherwise), earnings, business,
prospects or results of operations of The Placement Agent.
6.2 POWER AND AUTHORITY. The Placement Agent has all requisite
power and authority to enter into this Agreement, and this Agreement has
been duly and validly authorized, executed and delivered by the Placement
Agent and constitutes the legal, valid and binding agreement of the
Placement Agent, enforceable against the Placement Agent in accordance with
its terms, subject to Bankruptcy and Equity and except as any
indemnification or contribution provisions thereof may be limited under
applicable securities laws.
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6.3 GENERAL SOLICITATION. In the case of the offer and sale of
the Capital Securities, no form of general solicitation or general
advertising was used by the Placement Agent or its representatives
including, but not limited to, advertisements, articles, notices or other
communications published in any newspaper, magazine or similar medium or
broadcast over television or radio or any seminar or meeting whose
attendees have been invited by any general solicitation or general
advertising. Neither the Placement Agent nor its representatives have
engaged or will engage in any "directed selling efforts" within the meaning
of Regulation S with respect to the Capital Securities.
6.4 PURCHASER. The Placement Agent has made such reasonable
inquiry as is necessary to determine that the Purchaser is acquiring the
Capital Securities for its own account, that the Purchaser does not intend
to distribute the Capital Securities in contravention of the Securities Act
or any other applicable securities laws, and that the Purchaser is not a
"U.S. person" as that term is defined under Rule 902 of the Securities Act.
6.5 QUALIFIED PURCHASERS. The Placement Agent has not offered or
sold and will not arrange for the offer or sale of the Capital Securities
except (i) in an offshore transaction complying with Rule 903 of Regulation
S, or (ii) to those the Placement Agent reasonably believes are "accredited
investors" (as defined in Rule 501 of Regulation D), or (iii) in any other
manner that does not require registration of the Capital Securities under
the Securities Act. In connection with each such sale, the Placement Agent
has taken or will take reasonable steps to ensure that the Purchaser is
aware that (a) such sale is being made in reliance on an exemption under
the Securities Act, and (b) future transfers of the Capital Securities will
not be made except in compliance with applicable securities laws.
6.6 OFFERING CIRCULARS. Neither the Placement Agent nor its
representatives will include any non-public information about the Company,
the Trust or any of their affiliates in any registration statement,
prospectus, offering circular or private placement memorandum used in
connection with any purchase of Capital Securities without the prior
written consent of the Trust and the Company.
SECTION 7. COVENANTS OF THE OFFERORS. The Offerors covenant and agree with
the Placement Agent and the Purchaser as follows:
7.1 COMPLIANCE WITH REPRESENTATIONS AND WARRANTIES. During the
period from the date of this Agreement to the Closing Date, the Offerors
shall use their best efforts and take all action necessary or appropriate
to cause their representations and warranties contained in Section 5 hereof
to be true as of the Closing Date, after giving effect to the transactions
contemplated by this Agreement, as if made on and as of the Closing Date.
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7.2 SALE AND REGISTRATION OF SECURITIES. The Offerors and their
Affiliates shall not nor shall any of them permit any person acting on
their behalf (other than the Placement Agent), to directly or indirectly
(a) sell, offer for sale or solicit offers to buy or otherwise negotiate in
respect of any security (as defined in the Securities Act) that would or
could be integrated with the sale of the Capital Securities in a manner
that would require the registration under the Securities Act of the
Securities, or (b) make offers or sales of any such Security, or solicit
offers to buy any such Security, under circumstances that would require the
registration of any of such Securities under the Securities Act.
7.3 USE OF PROCEEDS. The Trust shall use the proceeds from the sale of
the Capital Securities to purchase the Debentures from the Company.
7.4 INVESTMENT COMPANY. The Offerors shall not engage, or permit any
subsidiary to engage, in any activity which would cause it or any
subsidiary to be an "investment company" under the provisions of the
Investment Company Act.
7.5 REIMBURSEMENT OF EXPENSES. If the sale of the Capital Securities
provided for herein is not consummated (a) because any condition set forth
in Section 3 hereof is not satisfied, or (b) because of any refusal,
inability or failure on the part of the Company or the Trust to perform any
agreement herein or comply with any provision hereof other than by reason
of a breach by the Placement Agent, the Company shall reimburse the
Placement Agent upon demand for all of their pro rata share of
out-of-pocket expenses (including reasonable fees and disbursements of
counsel) in an amount not to exceed $25,000.00 that shall have been
incurred by them in connection with the proposed purchase and sale of the
Capital Securities. Notwithstanding the foregoing, the Company shall have
no obligation to reimburse the Placement Agent for their out-of-pocket
expenses if the sale of the Capital Securities fails to occur because the
condition set forth in Section 3.6 is not satisfied or because either of
the Placement Agent fails to fulfill a condition set forth in Section 4.
7.6 DIRECTED SELLING EFFORTS, SOLICITATION AND ADVERTISING. In connection
with any offer or sale of any of the Securities, the Offerors shall not,
nor shall either of them permit any of their Affiliates or any person
acting on their behalf, other than the Placement Agent, to, (a) engage in
any "directed selling efforts" within the meaning of Regulation S, or (b)
engage in any form of general solicitation or general advertising (as
defined in Regulation D).
7.7 COMPLIANCE WITH RULE 144A(D)(4) UNDER THE SECURITIES ACT. So long
as any of the Securities are outstanding and are "restricted securities"
within the meaning of Rule 144(a)(3) under the Securities Act, the Offerors
will, during any period in which they are not subject to and in compliance
with Section 13 or 15(d) of the Exchange Act, or the Offerors are not
exempt from such reporting requirements pursuant to and in compliance with
Rule 12g3-2(b) under the Exchange Act, provide to each holder of such
restricted securities and to each prospective purchaser (as designated by
such holder) of such restricted securities, upon the request of such holder
or prospective purchaser in connection with any proposed transfer, any
information required to be provided by Rule 144A(d)(4) under the Securities
Act, if applicable. This covenant is intended to be for the benefit of the
holders, and the prospective purchasers designated by such holders, from
time to time of such restricted securities. The information provided by the
Offerors pursuant to this Section 7.7 will not, at the date thereof,
contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
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7.8 QUARTERLY REPORTS. Within 50 days of the end of each of the first
three calendar year quarters and within 75 days of the end of each calendar
year during which the Debentures are issued and outstanding, the Offerors
shall submit to JPMorgan Chase Bank, National Association, a completed
quarterly report in the form attached hereto as EXHIBIT D. The Offerors
acknowledge and agree that JPMorgan Chase Bank, National Association and
its successors and assigns is a third party beneficiary of this Section
7.8.
SECTION 8. COVENANTS OF THE PLACEMENT AGENT. The Placement Agent covenant
and agree with the Offerors that, during the period from the date of this
Agreement to the Closing Date, the Placement Agent shall use their best
efforts and take all action necessary or appropriate to cause their
representations and warranties contained in Section 6 to be true as of
Closing Date, after giving effect to the transactions contemplated by this
Agreement, as if made on and as of the Closing Date. The Placement Agent
further covenant and agree not to engage in hedging transactions with
respect to the Capital Securities unless such transactions are conducted in
compliance with the Securities Act.
SECTION 9. INDEMNIFICATION.
9.1 INDEMNIFICATION OBLIGATION. The Offerors shall jointly and
severally indemnify and hold harmless the Placement Agent and the Purchaser
and each of their respective agents, employees, officers and directors and
each person that controls either of the Placement Agent or the Purchaser
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, and agents, employees, officers and directors or any such
controlling person of either of the Placement Agent or the Purchaser (each
such person or entity, an "Indemnified Party") from and against any and all
losses, claims, damages, judgments, liabilities or expenses, joint or
several, to which such Indemnified Party may become subject under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Offerors), insofar as such losses, claims, damages, judgments, liabilities
or expenses (or actions in respect thereof) arise out of, or are based
upon, or relate to, in whole or in part, (a) any untrue statement or
alleged untrue statement of a material fact contained in any information
(whether written or oral) or documents executed in favor of, furnished or
made available to the Placement Agent or the Purchaser by the Offerors, or
(b) any omission or alleged omission to state in any information (whether
written or oral) or documents executed in favor of, furnished or made
available to the Placement Agent or the Purchaser by the Offerors a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and shall reimburse each Indemnified
Party for any legal and other expenses as such expenses are reasonably
incurred by such Indemnified Party in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
16
judgment, liability, expense or action described in this Section 9.1. In
addition to their other obligations under this Section 9, the Offerors
hereby agree that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of, or based
upon, or related to the matters described above in this Section 9.1, they
shall reimburse each Indemnified Party on a quarterly basis for all
reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, each Indemnified Party shall
promptly return such amounts to the Offerors together with interest,
determined on the basis of the prime rate (or other commercial lending rate
for borrowers of the highest credit standing) announced from time to time
by First Tennessee Bank, N.A. (the "Prime Rate"). Any such interim
reimbursement payments that are not made to an Indemnified Party within 30
days of a request for reimbursement shall bear interest at the Prime Rate
from the date of such request.
9.2 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after receipt by
an Indemnified Party under this Section 9 of notice of the commencement of
any action, such Indemnified Party shall, if a claim in respect thereof is
to be made against the Offerors under this Section 9, notify the Offerors
in writing of the commencement thereof; but, subject to Section 9.4, the
omission to so notify the Offerors shall not relieve them from any
liability pursuant to Section 9.1 which the Offerors may have to any
Indemnified Party unless and to the extent that the Offerors did not
otherwise learn of such action and such failure by the Indemnified Party
results in the forfeiture by the Offerors of substantial rights and
defenses. In case any such action is brought against any Indemnified Party
and such Indemnified Party seeks or intends to seek indemnity from the
Offerors, the Offerors shall be entitled to participate in, and, to the
extent that they may wish, to assume the defense thereof with counsel
reasonably satisfactory to such Indemnified Party; PROVIDED, HOWEVER, if
the defendants in any such action include both the Indemnified Party and
the Offerors and the Indemnified Party shall have reasonably concluded that
there may be a conflict between the positions of the Offerors and the
Indemnified Party in conducting the defense of any such action or that
there may be legal defenses available to it and/or other Indemnified
Parties which are different from or additional to those available to the
Offerors, the Indemnified Party shall have the right to select separate
counsel to assume such legal defenses and to otherwise participate in the
defense of such action on behalf of such Indemnified Party. Upon receipt of
notice from the Offerors to such Indemnified Party of their election to so
assume the defense of such action and approval by the Indemnified Party of
counsel, the Offerors shall not be liable to such Indemnified Party under
this Section 9 for any legal or other expenses subsequently incurred by
such Indemnified Party in connection with the defense thereof unless (a)
17
the Indemnified Party shall have employed such counsel in connection with
the assumption of legal defenses in accordance with the proviso in the
preceding sentence (it being understood, however, that the Offerors shall
not be liable for the expenses of more than one separate counsel
representing the Indemnified Parties who are parties to such action), or
(b) the Offerors shall not have employed counsel reasonably satisfactory to
the Indemnified Party to represent the Indemnified Party within a
reasonable time after notice of commencement of the action, in each of
which cases the fees and expenses of counsel of such Indemnified Party
shall be at the expense of the Offerors.
9.3 CONTRIBUTION. If the indemnification provided for in this Section
9 is required by its terms, but is for any reason held to be unavailable to
or otherwise insufficient to hold harmless an Indemnified Party under
Section 9.1 in respect of any losses, claims, damages, judgments,
liabilities or expenses referred to herein or therein, then the Offerors
shall contribute to the amount paid or payable by such Indemnified Party as
a result of any losses, claims, damages, judgments, liabilities or expenses
referred to herein (a) in such proportion as is appropriate to reflect the
relative benefits received by the Offerors, on the one hand, and the
Indemnified Party, on the other hand, from the offering of such Capital
Securities, or (b) if the allocation provided by clause (a) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (a) above but
also the relative fault of the Offerors, on the one hand, and the Placement
Agent, on the other hand, in connection with the statements or omissions or
inaccuracies in the representations and warranties herein or other breaches
which resulted in such losses, claims, damages, judgments, liabilities or
expenses, as well as any other relevant equitable considerations. The
respective relative benefits received by the Offerors, on the one hand, and
the Placement Agent, on the other hand, shall be deemed to be in the same
proportion, in the case of the Offerors, as the total price paid to the
Offerors for the Capital Securities sold by the Offerors to the Purchaser
(net of the compensation paid to the Placement Agent hereunder, but before
deducting expenses), and in the case of the Placement Agent, as the
compensation received by them, bears to the total of such amounts paid to
the Offerors and received by the Placement Agent as compensation. The
relative fault of the Offerors and the Placement Agent shall be determined
by reference to, among other things, whether the untrue statement or
alleged untrue statement of a material fact or the omission or alleged
omission of a material fact or the inaccurate or the alleged inaccurate
representation and/or warranty relates to information supplied by the
Offerors or the Placement Agent and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The provisions set forth in Section 9.2 with respect
to notice of commencement of any action shall apply if a claim for
contribution is made under this Section 9.3; PROVIDED, HOWEVER, that no
additional notice shall be required with respect to any action for which
notice has been given under Section 9.2 for purposes of indemnification.
The Offerors and the Placement Agent agree that it would not be just and
equitable if contribution pursuant to this Section 9.3 were determined by
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in this Section 9.3.
The amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages, judgments, liabilities or expenses referred to in
this Section 9.3 shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any such
action or claim. In no event shall the liability of the Placement Agent
hereunder be greater in amount than the dollar amount of the compensation
(net of payment of all expenses) received by the Placement Agent upon the
sale of the Capital Securities giving rise to such obligation. No person
found guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any
person who was not found guilty of such fraudulent misrepresentation.
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9.4 ADDITIONAL REMEDIES. The indemnity and contribution agreements
contained in this Section 9 are in addition to any liability that the
Offerors may otherwise have to any Indemnified Party.
9.5 ADDITIONAL INDEMNIFICATION. The Company shall indemnify and hold
harmless the Trust against all loss, liability, claim, damage and expense
whatsoever, as due from the Trust under Sections 9.1 through 9.4 hereof.
SECTION 10. RIGHTS AND RESPONSIBILITIES OF PLACEMENT AGENT.
10.1 RELIANCE. In performing their duties under this Agreement, the
Placement Agent shall be entitled to rely upon any notice, signature or
writing which they shall in good faith believe to be genuine and to be
signed or presented by a proper party or parties. The Placement Agent may
rely upon any opinions or certificates or other documents delivered by the
Offerors or their counsel or designees to either the Placement Agent or the
Purchaser.
10.2 RIGHTS OF PLACEMENT AGENT. In connection with the performance of
their duties under this Agreement, the Placement Agent shall not be liable
for any error of judgment or any action taken or omitted to be taken unless
the Placement Agent were grossly negligent or engaged in willful misconduct
in connection with such performance or non-performance. No provision of
this Agreement shall require the Placement Agent to expend or risk their
own funds or otherwise incur any financial liability on behalf of the
Purchaser in connection with the performance of any of their duties
hereunder. The Placement Agent shall be under no obligation to exercise any
of the rights or powers vested in them by this Agreement.
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SECTION 11. MISCELLANEOUS.
11.1 DISCLOSURE SCHEDULE. The term "Disclosure Schedule," as used
herein, means the schedule, if any, attached to this Agreement that sets
forth items the disclosure of which is necessary or appropriate as an
exception to one or more representations or warranties contained in Section
5 hereof. The Disclosure Schedule shall be arranged in paragraphs
corresponding to the section numbers contained in Section 5. Nothing in the
Disclosure Schedule shall be deemed adequate to disclose an exception to a
representation or warranty made herein unless the Disclosure Schedule
identifies the exception with reasonable particularity and describes the
relevant facts in reasonable detail. Without limiting the generality of the
immediately preceding sentence, the mere listing (or inclusion of a copy)
of a document or other item in the Disclosure Schedule shall not be deemed
adequate to disclose an exception to a representation or warranty made
herein unless the representation or warranty has to do with the existence
of the document or other item itself. Information provided by the Company
in response to any due diligence questionnaire shall not be deemed part of
the Disclosure Schedule and shall not be deemed to be an exception to one
or more representations or warranties contained in Section 5 hereof unless
such information is specifically included on the Disclosure Schedule in
accordance with the provisions of this Section 11.1.
11.2 NOTICES. Prior to the Closing, and thereafter with respect to
matters pertaining to this Agreement only, all notices and other
communications provided for or permitted hereunder shall be made in writing
by hand-delivery, first-class mail, telex, telecopier or overnight air
courier guaranteeing next day delivery:
if to the Placement Agent, to:
Cohen Bros. & Company
1818 Market Street
Philadelphia, Pennsylvania 19103
Telecopier: 215-861-7818
Telephone: 215-861-7800
Attention: Asset Back Securities
with a copy to:
Bracewell & Patterson, L.L.P.
111 Congress Avenue, Suite 2300
Austin, Texas 78701
Telecopier: 512-472-9123
Telephone: 512-472-7800
Attention: David Bentley Jones, Esq.
and
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if to the Offerors, to:
Tower Group, Inc.
120 Broadway, 14th Floor
New York, New York 10271-1699
Telecopier: 212-271-5492
Telephone: 212-655-2000
Attention: Francis M. Colalucci
with a copy to:
McLaughlin & Stern, LLP
260 Madison Avenue
New York, New York 10016
Telecopier: 212-448-1100
Telephone: 212-448-0066
Attention: Steven W. Schuster
All such notices and communications shall be deemed to have been duly
given (a) at the time delivered by hand, if personally delivered, (b) five
business days after being deposited in the mail, postage prepaid, if mailed, (c)
when answered back, if telexed, (d) the next business day after being
telecopied, or (e) the next business day after timely delivery to a courier, if
sent by overnight air courier guaranteeing next day delivery. From and after the
Closing, the foregoing notice provisions shall be superseded by any notice
provisions of the Operative Documents under which notice is given. The Placement
Agent, the Company, and their respective counsel, may change their respective
notice addresses from time to time by written notice to all of the foregoing
persons.
11.3 PARTIES IN INTEREST, SUCCESSORS AND ASSIGNS. Except as expressly
set forth herein, this Agreement is made solely for the benefit of the
Placement Agent, the Purchaser and the Offerors and any person controlling
the Placement Agent, the Purchaser or the Offerors and their respective
successors and assigns; and no other person shall acquire or have any right
under or by virtue of this Agreement. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties.
11.4 COUNTERPARTS. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute
one and the same agreement.
11.5 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
11.6 GOVERNING LAW. PURSUANT TO SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK, THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
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EACH OF THE TRUST AND THE COMPANY, ON BEHALF OF ITSELF AND ITS SUBSIDIARIES
(INCLUDING, WITHOUT LIMITATION, THE TRUST), HEREBY IRREVOCABLY SUBMITS TO
THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED
IN THE CITY OF NEW YORK IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING
RELATED TO THIS AGREEMENT OR ANY OF THE MATTERS CONTEMPLATED HEREBY,
IRREVOCABLY WAIVES ANY DEFENSE OF LACK OF PERSONAL JURISDICTION AND
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUIT, ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. EACH OF THE TRUST
AND THE COMPANY, ON BEHALF OF ITSELF AND ITS SUBSIDIARIES (INCLUDING,
WITHOUT LIMITATION, THE TRUST), IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
11.7 ENTIRE AGREEMENT. This Agreement, together with the other
Operative Documents and the other documents delivered in connection with
the transactions contemplated by this Agreement, is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained herein and therein. There
are no restrictions, promises, warranties or undertakings, other than those
set forth or referred to herein and therein. This Agreement, together with
the other Operative Documents and the other documents delivered in
connection with the transaction contemplated by this Agreement, supersedes
all prior agreements and understandings between the parties with respect to
such subject matter.
11.8 SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way
impaired or affected, it being intended that all of the Placement Agent and
the Purchaser's rights and privileges shall be enforceable to the fullest
extent permitted by law.
11.9 DISCLOSURE OF TAX TREATMENT AND TAX STRUCTURE. Notwithstanding
anything herein to the contrary, any party to this Agreement (and each
employee, representative or other agent of any party to this Agreement) may
disclose to any and all persons, without limitation of any kind, the tax
treatment and tax structure of the offering and all materials of any kind,
the tax treatment and tax structure of the transactions contemplated by
this Agreement and all materials of any kind (including opinions or other
tax analyses) that are provided to it relating to such tax treatment and
tax structure. However, such information relating to the tax treatment or
tax structure is required to be kept confidential to the extent necessary
to comply with any applicable federal or state securities laws. For this
purpose, "tax structure" means any facts relevant to the federal income tax
treatment of the offering contemplated by this Agreement but does not
include information relating to the identity of the Offerors.
22
11.10 SURVIVAL. The Placement Agent and the Offerors, respectively,
agree that the representations, warranties and agreements made by each of
them in this Agreement and in any certificate or other instrument delivered
pursuant hereto shall remain in full force and effect and shall survive the
delivery of, and payment for, the Capital Securities.
SIGNATURES APPEAR ON THE FOLLOWING PAGE
23
If this Agreement is satisfactory to you, please so indicate by signing
the acceptance of this Agreement and deliver such counterpart to the Offerors
whereupon this Agreement will become binding between us in accordance with its
terms.
Very truly yours,
Tower Group, Inc.
By: /s/ Michael H. Lee
- ---------------------------------------------
Name: Michael H. Lee
Title: President and Chief Executive Officer
TOWER GROUP STATUTORY TRUST IV
By: /s/ Francis M. Colalucci
- ---------------------------------------------
Name: Francis M. Colalucci
Title: Administrator
CONFIRMED AND ACCEPTED,
as of the date first set forth above
COHEN BROS. & COMPANY
By: /s/ Michael Shenkman
- ---------------------------------------------
Name: Michael Shenkman
Title: Chief Financial Officer
24
EXHIBIT A
FORM OF SUBSCRIPTION AGREEMENT
TOWER GROUP STATUTORY TRUST IV
TOWER GROUP, INC.
SUBSCRIPTION AGREEMENT
DECEMBER 21, 2004
THIS SUBSCRIPTION AGREEMENT (this "Agreement") made among Tower Group
Statutory Trust IV (the "Trust"), a statutory trust created under the Delaware
Statutory Trust Act (Chapter 38 of Title 12 of the Delaware Code, 12 Del. C.
ss.ss. 3801, ET SEQ.), Tower Group, Inc., a Delaware corporation, with its
principal offices located at 120 Broadway, 14th Floor, New York, New York
10271-1699 (the "Company," and collectively with the Trust, the "Offerors"), and
Merrill Lynch International (the "Purchaser").
RECITALS:
A. The Trust desires to issue 13,000 of its Floating Rate Capital
Securities (the "Capital Securities"), liquidation amount $1,000.00
per Capital Security, representing an undivided beneficial interest in
the assets of the Trust (the "Offering"), to be issued pursuant to an
Amended and Restated Declaration of Trust (the "Declaration") by and
among the Company, JPMorgan Chase Bank, as Institutional Trustee
National Association and Chase Manhattan Bank USA, National
Association, as a Delaware Trustee, ("Trustees") the administrators
named therein, and the holders (as defined therein), which Capital
Securities are to be guaranteed by the Company with respect to
distributions and payments upon liquidation, redemption and otherwise
pursuant to the terms of a Guarantee Agreement between the Company and
the Trustees, as trustee (the "Guarantee"); and
B. The proceeds from the sale of the Capital Securities will be combined
with the proceeds from the sale by the Trust to the Company of its
common securities, and will be used by the Trust to purchase an
equivalent amount of Floating Rate Junior Subordinated Deferrable
Interest Debentures of the Company (the "Debentures") to be issued by
the Company pursuant to an indenture to be executed by the Company and
the Trustees (the "Indenture"); and
C. In consideration of the premises and the mutual representations and
covenants hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF CAPITAL SECURITIES
1.1. Upon the execution of this Agreement, the Purchaser hereby subscribes
for and agrees to purchase from the Trust 13,000 Capital Securities at a price
equal to $1,000.00 per Capital Security (the "Purchase Price") and the Trust
agrees to sell such Capital Securities to the Purchaser for said Purchase Price.
The rights and preferences of the Capital Securities are set forth in the
Declaration. The Purchase Price is payable in immediately available funds on
December 21, 2004, or such other business day as may be designated by the
Purchaser, but in no event later than December 29, 2004 (the "Closing Date").
The Offerors shall provide the Purchaser wire transfer instructions no later
than 1 day following the date hereof.
1.2. The certificate for the Capital Securities shall be delivered by the
Trust on the Closing Date to the Purchaser or its designee.
1.3. The Placement Agreement, dated December 17, 2004 (the "Placement
Agreement"), among the Offerors and the Placement Agent identified therein
includes certain representations and warranties, covenants and conditions to
closing and certain other matters governing the Offering. The Placement
Agreement is hereby incorporated by reference into this Agreement and the
Purchaser shall be entitled to each of the benefits of the Placement Agent and
the Purchaser under the Placement Agreement and shall be entitled to enforce the
obligations of the Offerors under such Placement Agreement as fully as if the
Purchaser were a party to such Placement Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PURCHASER
2.1. The Purchaser understands and acknowledges that neither the Capital
Securities, the Debentures nor the Guarantee have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any other
applicable securities law, are being offered for sale by the Trust in
transactions not requiring registration under the Securities Act, and may not be
offered, sold, pledged or otherwise transferred by the Purchaser except in
compliance with the registration requirements of the Securities Act or any other
applicable securities laws, pursuant to an exemption therefrom or in a
transaction not subject thereto.
2.2. The Purchaser represents, warrants and certifies that (i) it is not a
"U.S. person" as such term is defined in Rule 902 under the Securities Act, (ii)
it is not acquiring the Capital Securities for the account or benefit of any
such U.S. person, (iii) the offer and sale of Capital Securities to the
Purchaser constitutes an "offshore transaction" under Regulation S of the
Securities Act, and (iv) it will not engage in hedging transactions with regard
to the Capital Securities unless such transactions are conducted in compliance
with the Securities Act and the Purchaser agrees to the legends and transfer
restrictions set forth on the Capital Securities certificate.
A-2
2.3. The Purchaser represents and warrants that it is purchasing the
Capital Securities for its own account, for investment, and not with a view to,
or for offer or sale in connection with, any distribution thereof in violation
of the Securities Act or other applicable securities laws, subject to any
requirement of law that the disposition of its property be at all times within
its control and subject to its ability to resell such Capital Securities
pursuant to an effective registration statement under the Securities Act or
under Rule 144A or any other exemption from registration available under the
Securities Act or any other applicable securities law.
2.4. The Purchaser represents and warrants that it has full power and
authority to execute and deliver this Agreement, to make the representations and
warranties specified herein, and to consummate the transactions contemplated
herein and it has full right and power to subscribe for Capital Securities and
perform its obligations pursuant to this Agreement.
2.5. The Purchaser, a Cayman Islands company whose business includes
issuance of certain notes and acquiring the Capital Securities and other similar
securities, represents and warrants that it has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of purchasing the Capital Securities, has had the opportunity to ask
questions of, and receive answers and request additional information from, the
Offerors and is aware that it may be required to bear the economic risk of an
investment in the Capital Securities.
2.6. The Purchaser represents and warrants that no filing with, or
authorization, approval, consent, license, order, registration, qualification or
decree of, any governmental body, agency or court having jurisdiction over the
Purchaser, other than those that have been made or obtained, is necessary or
required for the performance by the Purchaser of its obligations under this
Agreement or to consummate the transactions contemplated herein.
2.7. The Purchaser represents and warrants that this Agreement has been
duly authorized, executed and delivered by the Purchaser.
2.8. The Purchaser represents and warrants that (i) the Purchaser is not in
violation or default of any term of its Memorandum of Association or Articles of
Association, of any provision of any mortgage, indenture, agreement, instrument
or contract to which it is a party or by which it is bound or of any judgment,
decree, order, writ or, to its knowledge, any statute, rule or regulation
applicable to the Purchaser which would prevent the Purchaser from performing
any material obligation set forth in this Agreement; and (ii) the execution,
delivery and performance of and compliance with this Agreement, and the
consummation of the transactions contemplated herein, will not, with or without
the passage of time or giving of notice, result in any such material violation,
or be in conflict with or constitute a default under any such term, or the
suspension, revocation, impairment, forfeiture or non-renewal of any permit,
license, authorization or approval applicable to the Purchaser, its business or
operations or any of its assets or properties which would prevent the Purchaser
from performing any material obligations set forth in this Agreement.
2.9. The Purchaser represents and warrants that the Purchaser is an
exempted company with limited liability duly incorporated, validly existing and
in good standing under the laws of the Cayman Islands, with full power and
authority to perform its obligations under this Agreement.
A-3
2.10. The Purchaser understands and acknowledges that the Company will rely
upon the truth and accuracy of the foregoing acknowledgments, representations,
warranties and agreements and agrees that, if any of the acknowledgments,
representations, warranties or agreements deemed to have been made by it by its
purchase of the Capital Securities are no longer accurate, it shall promptly
notify the Company.
2.11. The Purchaser understands that no public market exists for any of the
Capital Securities, and that it is unlikely that a public market will ever exist
for the Capital Securities.
ARTICLE III
MISCELLANEOUS
3.1. Any notice or other communication given hereunder shall be deemed
sufficient if in writing and sent by registered or certified mail, return
receipt requested, international courier or delivered by hand against written
receipt therefor, or by facsimile transmission and confirmed by telephone, to
the following addresses, or such other address as may be furnished to the other
parties as herein provided:
To the Offerors: Tower Group, Inc.
120 Broadway, 14th Floor
New York, New York 10271-1699
Attention: Francis M. Colalucci
Telecopier: 212-271-5492
To the Purchaser: Merrill Lynch International
c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated
250 Vesey Street
New York, New York 10080
Phone: (212) 449-5113
Fax: (212) 449-3695
Unless otherwise expressly provided herein, notices shall be deemed to have
been given on the date of mailing, except notice of change of address, which
shall be deemed to have been given when received.
3.2. This Agreement shall not be changed, modified or amended except by a
writing signed by the parties to be charged, and this Agreement may not be
discharged except by performance in accordance with its terms or by a writing
signed by the party to be charged.
3.3. Upon the execution and delivery of this Agreement by the Purchaser,
this Agreement shall become a binding obligation of the Purchaser with respect
to the purchase of Capital Securities as herein provided.
A-4
3.4. Notwithstanding anything expressed or implied to the contrary, each
Purchaser of Capital Securities (and each employee, representative, or other
agent of a Purchaser) may disclose to any and all persons, without limitation of
any kind, the U.S. tax treatment and U.S. tax structure of the transactions
contemplated by this Agreement and all materials of any kind (including opinions
or other tax analyses) that are provided to the Purchaser relating to such U.S.
tax treatment and U.S. tax structure as such terms are defined in Treasury
Regulation Section 1.6011-4; provided, that any such disclosure of the U.S. tax
treatment and U.S. tax structure and materials related thereto may not be made
(i) in a manner that would constitute an offer to sell or the solicitation of an
offer to buy the Capital Securities offered herein under applicable securities
laws or (ii) when nondisclosure is reasonably necessary to comply with
applicable securities laws. This authorization of tax disclosure is
retroactively effective to the commencement of the first discussions between the
parties regarding the transactions contemplated herein.
3.5. PURSUANT TO SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE
OF NEW YORK, THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK. EACH OF THE TRUST, THE PURCHASER AND
THE COMPANY, ON BEHALF OF ITSELF AND ITS SUBSIDIARIES (INCLUDING, WITHOUT
LIMITATION, THE TRUST), HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION
OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN THE CITY OF NEW YORK IN
CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS AGREEMENT OR ANY
OF THE MATTERS CONTEMPLATED HEREBY, IRREVOCABLY WAIVES ANY DEFENSE OF LACK OF
PERSONAL JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY
SUIT, ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. EACH
OF THE TRUST, THE PURCHASER AND THE COMPANY, ON BEHALF OF ITSELF AND ITS
SUBSIDIARIES (INCLUDING, WITHOUT LIMITATION, THE TRUST), IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
3.6. The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further action as may be
necessary or appropriate to carry out the purposes and intent of this Agreement.
3.7. This Agreement may be executed in one or more counterparts each of
which shall be deemed an original, but all of which shall together constitute
one and the same instrument.
3.8. In the event that any one or more of the provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired or affected, it being
intended that all of the Offerors' and the Purchaser's rights and privileges
shall be enforceable to the fullest extent permitted by law.
A-5
SIGNATURES APPEAR ON THE FOLLOWING PAGE
A-6
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be
duly executed as of the day and year first written above.
MERRILL LYNCH INTERNATIONAL
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
IN WITNESS WHEREOF, this Agreement is agreed to and accepted as of the
day and year first written above.
TOWER GROUP, INC.
By:
---------------------------------------------
Name: Michael H. Lee
Title: President and Chief Executive Officer
TOWER GROUP STATUTORY TRUST IV
By:
---------------------------------------------
Name: Michael H. Lee
Title: Administrator
A-7
EXHIBIT B-1
FORM OF COMPANY COUNSEL OPINION
December 21, 2004
Merrill Lynch International
c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated
250 Vesey Street
New York, New York 10080
Phone: (212) 449-5113
Fax: (212) 449-3695
Cohen Bros. & Co.
1818 Market Street
Philadelphia, Pennsylvania 19103
JP Morgan Chase Bank, National Association
600 Travis Street, 50th Floor
Houston, Texas 77002
Ladies and Gentlemen:
We have acted as counsel to Tower Group, Inc. (the "Company"), a
Delaware corporation in connection with a certain Placement Agreement, dated
December 17, 2004, (the "Placement Agreement"), between the Company and Tower
Group Statutory Trust IV (the "Trust"), on one hand, and Cohen Bros. and Company
(the "Placement Agent"), on the other hand. Pursuant to the Placement Agreement,
and subject to the terms and conditions stated therein, the Trust will issue and
sell to Merrill Lynch International (the "Purchaser"), $13,000,000 aggregate
principal amount of Floating Rate Capital Securities (liquidation amount
$1,000.00 per capital security) (the "Capital Securities").
Capitalized terms used herein and not otherwise defined shall have the
same meanings ascribed to them in the Placement Agreement.
The law covered by the opinions expressed herein is limited to the law
of the United States of America and of the State of Delaware and New York.
We have made such investigations of law as, in our judgment, were
necessary to render the following opinions. We have also reviewed (a) the
Company's Articles of Incorporation, as amended, and its By-Laws, as amended,
and (b) such corporate documents, records, information and certificates of the
Company and its Significant Subsidiaries, certificates of public officials or
government authorities and other documents as we have deemed necessary or
appropriate as a basis for the opinions hereinafter expressed. As to certain
facts material to our opinions, we have relied, with your permission, upon
statements, certificates or representations, including those delivered or made
in connection with the above-referenced transaction, of officers and other
representatives of the Company and its Significant Subsidiaries and the Trust.
B-1-1
As used herein, the phrase "to our knowledge" or "to the best of our
knowledge" or other similar phrase means the actual knowledge of the attorneys
who have had active involvement in the transactions described above or who have
prepared or signed this opinion letter, or who otherwise have devoted
substantial attention to legal matters for the Company.
To the extent it may be relevant to the opinions expressed herein, we
have assumed that the parties to the Operative Documents other than the Company
have the power to enter into and perform such documents and to consummate the
transactions contemplated thereby and that such documents have been duly
authorized, executed and delivered by, and constitute legal, valid and binding
obligations of, such parties.
Our opinion as to the enforceability of the Operative Documents is
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law or in a
bankruptcy proceeding) and assumes that the parties seeking enforcement will act
with commercial reasonableness in exercising each of their rights and remedies
thereunder. We further assume that the enforcement of any rights may in all
cases be subject to an implied duty of good faith and fair dealing and to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity).
We express no opinion on the validity, binding effect or enforceability
under any provisions of the Operative Documents (i) which waive any rights
afforded to any party thereto under any statute or constitutional provisions,
(ii) which waive broadly or vaguely stated rights or future rights, or waive
certain rights or defenses to obligations where such waivers are against
statutes, laws or public policy, or (ii) the breach of which a court concludes
is not material or does not adversely affect the non-breaching party. Insofar as
the indemnity provisions of the Operative Documents may encompass
indemnification with respect to violation of laws, enforcement thereof may be
limited by public policies underlying such laws.
We express no opinion as to the accuracy of factual matters contained
in any exhibits or schedules to the Operative Documents. No opinion is given
herein as to the choice of law or internal substantive rules of law that any
court or other tribunal may apply to the transactions contemplated by the
Operative Documents.
This opinion is issued as of the date hereof and is necessarily limited
to the laws now in effect and the facts and circumstances known to us on the
date hereof. We are not assuming any obligation to review or update this opinion
should applicable law or the existing fact and circumstances change.
Based upon and subject to the foregoing and the further qualifications
set forth below, we are of the opinion as of the date hereof that:
B-1-2
1. The Company is validly existing and in good standing under the laws of the
State of Delaware. Each of the Significant Subsidiaries is validly existing and
in good standing under the laws of its jurisdiction of organization. Each of the
Company and the Significant Subsidiaries has full corporate power and authority
to own or lease its properties and to conduct its business as such business is
currently conducted in all material respects. To the best of our knowledge, all
outstanding shares of capital stock of the Significant Subsidiaries have been
duly authorized and validly issued, and are fully paid and nonassessable and
owned of record and beneficially, directly or indirectly by the Company.
2. The issuance, sale and delivery of the Debentures in accordance with the
terms and conditions of the Placement Agreement and the Operative Documents have
been duly authorized by all necessary actions of the Company. The issuance, sale
and delivery of the Debentures by the Company and the issuance, sale and
delivery of the Trust Securities by the Trust do not give rise to any preemptive
or other rights to subscribe for or to purchase any shares of capital stock or
equity securities of the Company or the Significant Subsidiaries pursuant to the
corporate Articles of Incorporation or Charter, By-Laws or other governing
documents of the Company or the Significant Subsidiaries, or, to the best of our
knowledge, any agreement or other instrument to which either Company or the
Significant Subsidiaries is a party or by which the Company or the Significant
Subsidiaries may be bound.
3. The Company has all requisite corporate power to enter into and perform its
obligations under the Placement Agreement and the Subscription Agreement, and
the Placement Agreement and the Subscription Agreement have been duly and
validly authorized, executed and delivered by the Company and constitute the
legal, valid and binding obligations of the Company enforceable in accordance
with their terms, except as the enforcement thereof may be limited by general
principles of equity and by bankruptcy or other laws affecting creditors' rights
generally, and except as the indemnification and contribution provisions thereof
may be limited under applicable laws and certain remedies may not be available
in the case of a non-material breach.
4. Each of the Indenture, the Trust Agreement and the Guarantee Agreement has
been duly authorized, executed and delivered by the Company, and is a valid and
legally binding obligation of the Company enforceable in accordance with its
terms, subject to the effect of bankruptcy, insolvency, reorganization,
receivership, moratorium and other laws affecting the rights and remedies of
creditors generally and of general principles of equity.
5. The Debentures have been duly authorized, executed and delivered by the
Company, are entitled to the benefits of the Indenture and are legal, valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, subject to the effect of bankruptcy, insolvency,
reorganization, receivership, moratorium and other laws affecting the rights and
remedies of creditors generally and of general principles of equity.
6. To the best of our knowledge, neither the Company, the Trust, nor any other
Significant Subsidiaries of the Company is in breach or violation of, or default
under, with or without notice or lapse of time or both, its Articles of
Incorporation or Charter, By-Laws or other governing documents (including
without limitation, the Trust Agreement). The execution, delivery and
performance of the Placement Agreement and the Operative Documents and the
consummation of the transactions contemplated by the Placement Agreement and the
Operative Documents do not and will not (i) result in the creation or imposition
of any material lien, claim, charge, encumbrance or restriction upon any
property or assets of the Company or its Significant Subsidiaries, or (ii)
conflict with, constitute a material breach or violation of, or constitute a
material default under, with or without notice or lapse of time or both, any of
the terms, provisions or conditions of (A) the Articles of Incorporation or
Charter, By-Laws or other governing documents of the Company or its Significant
Subsidiaries, or (B) to the best of our knowledge, any material contract,
indenture, mortgage, deed of trust, loan or credit agreement, note, lease,
franchise, license or any other agreement or instrument to which the Company or
its Significant Subsidiaries is a party or by which any of them or any of their
respective properties may be bound or (C) any order, decree, judgment,
franchise, license, permit, rule or regulation of any court, arbitrator,
government, or governmental agency or instrumentality, domestic or foreign,
known to us having jurisdiction over the Company or its Significant Subsidiaries
or any of their respective properties which, in the case of each of (i) or (ii)
above, is material to the Company and its Significant Subsidiaries on a
consolidated basis.
B-1-3
7. Except for filings, registrations or qualifications that may be required by
applicable securities laws, no authorization, approval, consent or order of, or
filing, registration or qualification with, any person (including, without
limitation, any court, governmental body or authority) is required under the
laws of the State of New York in connection with the transactions contemplated
by the Placement Agreement and the Operative Documents in connection with the
offer and sale of the Capital Securities as contemplated by the Placement
Agreement and the Operative Documents.
8. To the best of our knowledge (i) no action, suit or proceeding at law or in
equity is pending or threatened to which the Offerors or their Significant
Subsidiaries are or may be a party, and (ii) no action, suit or proceeding is
pending or threatened against or affecting the Offerors or their Significant
Subsidiaries or any of their properties, before or by any court or governmental
official, commission, board or other administrative agency, authority or body,
or any arbitrator, wherein an unfavorable decision, ruling or finding could
reasonably be expected to have a material adverse effect on the consummation of
the transactions contemplated by the Placement Agreement and the Operative
Documents or the issuance and sale of the Capital Securities as contemplated
therein or the condition (financial or otherwise), earnings, affairs, business,
or results of operations of the Offerors and their Significant Subsidiaries on a
consolidated basis.
9. Assuming the truth and accuracy of the representations and warranties of the
Placement Agent in the Placement Agreement and the Purchaser in the Subscription
Agreement, it is not necessary in connection with the offering, sale and
delivery of the Capital Securities, the Debentures and the Guarantee Agreement
(or the Guarantee) to register the same under the Securities Act of 1933, as
amended, under the circumstances contemplated in the Placement Agreement and the
Subscription Agreement.
10. Neither the Company nor the Trust is or after giving effect to the offering
and sale of the Capital Securities and the consummation of the transactions
described in the Placement Agreement will be, an "investment company" or an
entity "controlled" by an "investment company," in each case within the meaning
of the Investment Company Act of 1940, as amended, without regard to Section
3(c) of such Act .
B-1-4
The opinion expressed in the first two sentences of numbered paragraph
1 of this Opinion Letter is based solely upon certain certificates and
confirmations issued by the applicable governmental officer or authority with
respect to each of the Company and the Significant Subsidiaries.
[With respect to the foregoing opinions, since no member of this firm
is actively engaged in the practice of law in the States of Delaware, we do not
express any opinions as to the laws of such states and have relied, with your
approval, upon the opinion of Richards, Layton & Finger, P.A. with respect to
matters of Delaware law. Except with respect to the opinions expressed in
paragraphs 2, 6 and 10, we also express no opinion with respect to the Trust
except to the extent such matters are opined upon by Richards, Layton & Finger,
P.A. in the opinion dated the date hereof, including, but not limited to the
enforceability of any Operative Documents with respect to the Trust, without
regard to conflict of law provisions.]
This opinion is rendered to you solely pursuant to Section 3.1(a) of
the Placement Agreement. As such, it may be relied upon by you only and may not
be used or relied upon by any other person for any purpose whatsoever without
our prior written consent.
Very truly yours,
B-1-5
EXHIBIT A TO EXHIBIT B-2
CERTIFICATE OF LEGAL EXISTENCE
See attached
B-2-1
EXHIBIT B-2
FORM OF TAX COUNSEL OPINION
1. The Corresponding Debentures will be classified as indebtedness of
the Company for United States federal income tax purposes; and
2. The Trust will be characterized as a grantor trust and not as an
association taxable as a corporation for United States federal
income tax purposes.
The opinions we express herein are limited solely to matters governed
by the federal income tax laws of the United States. Our opinion is provided
solely to you as a legal opinion only, and not as a guaranty or warranty, and is
limited to the specific transactions, documents, and matters described above. No
opinion may be implied or inferred beyond that which is expressly stated in this
letter.
We express no opinion with respect to any matter not specifically
addressed by the foregoing opinions, including state or local tax consequences,
or any federal, state, or local issue not specifically referred to and discussed
above including, without limitation, the effect on the matters covered by this
opinion of the laws of any other jurisdiction.
We are furnishing this opinion to you solely for your benefit in
connection with the issuance of the Capital Securities, the Common Securities
and the Corresponding Debentures, and this opinion is not to be relied upon for
any other purpose or by any other person without our express written consent.
Notwithstanding the foregoing, (i) copies of this opinion letter may be provided
for the benefit of [RATING AGENCY] and (ii) you (and each of your employees,
representatives and other agents) may disclose this letter to any and all
persons, without limitation of any kind, to the extent such disclosure may be
relevant to understanding the tax treatment or tax structure of any transaction
contemplated by the Placement Agreement. We disclaim any obligation to update
this opinion letter for events occurring or coming to our attention after the
date hereof.
Very truly yours,
B-3-1
Tower Group, Inc.
December 21, 2004
Bracewell & Patterson, L.L.P.
111 Congress Avenue, Suite 2300
Austin, Texas 78701
Re: Representations Concerning the Issuance of Floating Rate Junior
Subordinated Deferrable Interest Debentures (the "Corresponding
Debentures") to Tower Group Statutory Trust IV (the "Trust") and Sale
of Trust Securities (THE "TRUST SECURITIES") OF THE TRUST
Dear Sirs:
In accordance with your request, Tower Group, Inc. (the "Company")
hereby makes the following representations in connection with the preparation of
your opinion letter as to the United States federal income tax consequences of
the issuance by the Company of the Corresponding Debentures to the Trust and the
sale of the Trust Securities.
The Company hereby represents that:
(1) The sole assets of the Trust will be the Corresponding Debentures, any
interest paid on the Corresponding Debentures to the extent not
distributed, proceeds of the Corresponding Debentures, or any of the
foregoing.
(2) The Company intends to use the net proceeds from the sale of the
Corresponding Debentures for general corporate purposes.
(3) The Trust was not formed to conduct any trade or business and is not
authorized to conduct any trade or business. The Trust exists for the
exclusive purposes of (i) issuing and selling the Trust Securities, (ii)
using the proceeds from the sale of Trust Securities to acquire the
Corresponding Debentures, and (iii) engaging only in activities necessary
or incidental thereto.
(4) The Trust was formed to facilitate direct investment in the assets of
the Trust, and the existence of multiple classes of ownership is incidental
to that purpose. There is no intent to provide holders of such interests in
the Trust with diverse interests in the assets of the Trust.
(5) The Company intends to create a debtor-creditor relationship between
the Company, as debtor, and the Trust, as a creditor, upon the issuance and
sale of the Corresponding Debentures to the Trust by the Company. The
Company will (i) record and at all times continue to reflect the
Corresponding Debentures as indebtedness on its separate books and records
for financial accounting purposes, and (ii) treat the Corresponding
Debentures as indebtedness for all United States federal, state and local
income tax purposes.
B-3-2
(6) During each year, the Trust's income will consist solely of payments
made by the Company with respect to the Corresponding Debentures. Such
payments will not be derived from the active conduct of a financial
business by the Trust. Both the Company's obligation to make such payments
and the measurement of the amounts payable by the Company are defined by
the terms of the Corresponding Debentures. Neither the Company's obligation
to make such payments nor the measurement of the amounts payable by the
Company is dependent on income or profits of the Company or any affiliate
of the Company.
(7) The Company has reviewed projections of earnings, cash flow, capital
and surplus and other relevant financial and economic data relating to the
Company and its affiliates. Based on the current and estimated net cash
flow and the projections of earnings, cash flow, capital and surplus of the
Company and its affiliates, the Company believes its net cash flow will be
in excess of the amount of principal and interest required to be paid in
accordance with the terms of the Corresponding Debentures and the Company
expects that it will be able to make, and will make, timely payment of
principal and interest in accordance with the terms of the Corresponding
Debentures with available capital or accumulated net cash flow.
(8) The principal insurance operating subsidiary of the Company has
received either a financial strength rating of at least B+ with a neutral
or positive outlook from A.M. Best Company, Inc., or an investment grade
financial strength rating from either Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. or Fitch Ratings.
(9) The terms and conditions of the Corresponding Debentures, including the
interest rate, were determined on an arm's length basis.
(10) The Company presently has no intention to defer interest payments on
the Corresponding Debentures, and it considers the likelihood of such a
deferral to be remote because, if it were to exercise its right to defer
payments of interest with respect to the Corresponding Debentures, it would
not be permitted to declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to,
any capital stock of the Company or any affiliate of the Company (other
than payments of dividends or distributions to the Company) or make any
payment of principal of or interest or premium, if any, on or repay,
repurchase, or redeem any debt securities of the Company or any affiliate
of the Company that rank PARI PASSU in all respects with or junior in
interest to the Corresponding Debentures, in each case subject to limited
exceptions stated in Section 2.11 of the Indenture to be entered into in
connection with the issuance of the Corresponding Debentures.
B-3-3
(11) Immediately after the issuance of the Corresponding Debentures, the
debt-to-equity ratio of the Company (as determined for financial accounting
purposes) will be no higher than three to one (3 : 1). The Company has no
plan or intention to issue debt that would cause such ratio to exceed three
to one (3 : 1). For purposes of this paragraph 11, (i) the Corresponding
Debentures will be treated as debt and payments thereon will be treated as
interest, (ii) other debt (as determined for financial accounting purposes)
shall include both short-term and long-term indebtedness of the Company,
and (iii) equity (as determined for financial accounting purposes) shall
include capital stock, preferred stock, if any, paid in surplus and
retained earnings of the Company.
(12) To the best of our knowledge, the Company's subsidiaries are currently
in compliance with all applicable federal, state, and local capital
requirements, except to the extent that failure to comply with any such
requirements would not have a material adverse effect on the Company and
its subsidiaries.
(13) For purposes hereof, you may rely on the representations made by the
Company in the Placement Agreement dated as of December 17, 2004, by and
among Cohen Bros. & Company, the Trust and the Company.
(14) The Company will not issue any class of common stock or preferred
stock senior in rights (such as payment rights and liquidation preference)
to the Corresponding Debentures during their term.
(15) The Internal Revenue Service has not challenged the interest deduction
on any class of the Company's subordinated debt in the last ten (10) years
on the basis that such debt constitutes equity for federal income tax
purposes.
The above representations are accurate as of the date hereof and will
continue to be accurate through the issuance of the Trust Securities, unless you
are otherwise notified by us in writing. The undersigned understands that you
will rely on the foregoing in connection with rendering certain legal opinions,
and possesses the authority to make the representations set forth in this letter
on behalf of the Company.
Very truly yours,
Tower Group, Inc.
By:
-----------------------------------------
Name:
Title:
B-3-4
EXHIBIT C
SIGNIFICANT SUBSIDIARIES
Tower Insurance Company of New York
Tower Risk Management Corp.
C-1
EXHIBIT D
FORM OF QUARTERLY REPORT
Merrill Lynch International
c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated
250 Vesey Street
New York, New York 10080
Phone: (212) 449-5113
Fax: (212) 449-3695
PLEASE COMPLETE FOR THE PRINCIPAL INSURANCE OPERATING SUBSIDIARY
AS OF YEAR END _______, 20__
NAIC Risk Based Capital Ratio (authorized control level) ________ %
AS OF [MARCH 31, JUNE 30, SEPTEMBER 30, OR DECEMBER 31,] 20___
Total Policyholders' Surplus $________
Consolidated Debt to Total Policyholders' Surplus _________%
Total Assets $________
NAIC Class 1 & 2 Rated Investments to Total Fixed Income Investments _________%
NAIC Class 1 & 2 Rated Investments to Total Investments _________%
Return on Policyholders' Surplus _________%
FOR PROPERTY & CASUALTY COMPANIES
EXPENSE RATIO _________%
LOSS AND LAE RATIO _________%
COMBINED RATIO _________%
NET PREMIUMS WRITTEN (ANNUALIZED) TO POLICYHOLDERS' SURPLUS _________%
D-1
- -----------------------------------------------------------------------------------------------------------------------------------
NAIC RISK BASED CAPITAL RATIO-P&C (TOTAL ADJUSTED CAPITAL/AUTHORIZED CONTROL LEVEL RISK-BASED
CAPITA/)/2
- -----------------------------------------------------------------------------------------------------------------------------------
NAIC RISK BASED CAPITAL RATIO-LIFE ((TOTAL ADJUSTED CAPITAL-ASSET VALUATION RESERVE)/AUTHORIZED
CONTROL LEVEL RISK-BASED CAPITA/)/2
- ---------------------------------------------------------------- ------------------------------------------------------------------
TOTAL CAPITAL AND SURPLUS-LIFE COMMON CAPITAL STOCK + PREFERRED CAPITAL STOCK + AGGREGATE
WRITE-INS FOR OTHER THAN SPECIAL SURPLUS FUNDS + SURPLUS NOTES
+GROSS PAID-IN AND CONTRIBUTED SURPLUS + AGGREGATE WRITE-INS FOR
SPECIAL SURPLUS FUNDS + UNASSIGNED FUNDS (SURPLUS) - TREASURY
STOCK
- ----------------------------------------------------------------- -----------------------------------------------------------------
TOTAL CAPITAL AND SURPLUS-P&C AGGREGATE WRITE-INS FOR SPECIAL SURPLUS FUNDS + COMMON CAPITAL
STOCK + PREFERRED CAPITAL STOCK + AGGREGATE WRI FOR OTHER THAN
SPECIAL SURPLUS FUNDS + SURPLUS NOTES +GROSS P AND CONTRIBUTED
SURPLUS + UNASSIGNED FUNDS (SURPLUS) - TREASURY STOCK
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CLASS 1 & 2 RATED INVESTMENTS TO TOTAL (TOTAL CLASS 1 + TOTAL CLASS 2 RATED INVESTMENTS)/TOTAL FIXED
FIXED INCOME INVESTMENTS INCOME INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CLASS 1 & 2 RATED INVESTMENTS TO TOTAL INVESTMENTS (TOTAL CLASS 1 + TOTAL CLASS 2 RATED INVESTMENTS)/TOTAL
INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS TOTAL ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
RETURN ON POLICYHOLDERS' SURPLUS NET INCOME/POLICYHOLDERS' SURPLUS
- -----------------------------------------------------------------------------------------------------------------------------------
EXPENSE RATIO OTHER UNDERWRITING EXPENSES INCURRED/NET PREMIUMS EARNED
- -----------------------------------------------------------------------------------------------------------------------------------
LOSS AND LAE RATIO (LOSSES INCURRED + LOSS EXPENSES INCURRED)/NET PREMIUMS EARNED
- -----------------------------------------------------------------------------------------------------------------------------------
COMBINED RATIO EXPENSE RATIO + LOSS AND LAE RATIO
- -----------------------------------------------------------------------------------------------------------------------------------
NET PREMIUMS WRITTEN (ANNUALIZED) TO POLICYHOLDERS' SURPLUS NET PREMIUMS WRITTEN/POLICYHOLDERS' SURPLUS
- -----------------------------------------------------------------------------------------------------------------------------------
D-2